Saturday, March 31, 2012

Predicting droughts - How long can stocks stay below the last high?

The S&P 500 is close to breaking a new record in a bad way... if you take the real value of the S&P500 (divide the nominal value by CPI to account for inflation), and re-invest dividends, you can create an index that reflects the real experience of a buy-and-hold investor (ignoring tax).  The graph below shows for any given month, the number of months that have gone by without breaking the last high in this value.

The last time the number of months went really high was for the 12 years between January 1973 and January 1985 - January 1985 was a new high even though the real S&P500 was 1.56 (vs. 2.77 in 1973) - that's the noticeable impact from dividend re-investment.

As of April 1, 2012, it has been 139 months without a new high in this metric.  To avoid breaking the 1985 record, the real value of the S&P500 would have to jump by another 12% in the next 5 months.  That level of jump is obviously not outside the question (it's about the same as the jump from January 2012 to now).

Stay tuned to see if we set a new record drought or not!

Thursday, March 15, 2012

Update on Canadian-to-US equities

A few months ago, I posted a graph on the ratio of EWC (Canadian equities) and SPY (S&P 500)... see here.

Today that ratio is more like 0.203, which is on the way lower than the 0.225 that we had in September.

Is a short on the EWC (or other commodity-related indices) a good insurance policy?